Question

In: Operations Management

Mandren Inc. has a fire insurance policy from the Blundi Insurance Company with a 90% coinsurance...

Mandren Inc. has a fire insurance policy from the Blundi Insurance Company with a 90% coinsurance clause based on replacement cost. The replacement cost of the building is $600,000. The face amount of the policy Mandren purchases is $400,000. If a covered loss in the amount of $550,000 occurs, how much will Mandren collect from their insurer? (round to the nearest dollar)

$422,232

$352,708

$400,000

$411,111

Solutions

Expert Solution

$400,000

Formula

Mandrel will collect = (amount of loss / coinsurance % ) * ( policy amount / replacement cost )

550,000/90% = 611,111.11 which is higher than replacement cost of 600,000$

In this case ,replacement cost will be used as this is the maximum limit.

Mandrel will collect= 600,000* 400,000/ 600,000 = $ 400,000

keosha answered 3 years ago
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